Transocean’s Deepwater Opportunities In The U.S. Gulf Of Mexico

by Trefis Team
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Quicktake

  • Transocean has been focusing on the deepwater and ultra-deepwater segment of the offshore market.
  • The Gulf of Mexico is the company’s most important market for ultra-deepwater.
  • 14 out of 27 of the firm’s ultra-deepwater floaters are in the GoM
  • DoJ settlement in January relating to Macondo spill should clear most of Transocean’s legal troubles in the U.S.
  • U.S. government plans to auction 38 million acres in the GoM for new exploration.
  • New grounds could unlock around 1 billion barrels in oil reserves, bringing new opportunities for drillers like Transocean.

Transocean (NYSE:RIG), the world’s largest offshore drilling contractor, has been focusing on the deepwater drilling market to carve out a niche for itself in the increasingly competitive offshore drilling space. This segment of the offshore market offers better utilization rates and higher day rates and is relatively more profitable since smaller contractors do not have operations in this segment. The U.S. Gulf of Mexico (GoM) is currently the firm’s most important deepwater market and is likely to remain to be cornerstone in the firm’s deepwater ambitions going forward. We take a quick look at the regions importance to Transocean and how it can drive revenues going forward.

See our full analysis for Transocean and $56 price estimate

Demand In The GoM Likely To Grow

The federal offshore region of the U.S. Gulf of Mexico accounts for nearly 25% of U.S. crude oil production and 7% of dry gas production. [1] The region holds more than 4 billion barrels in proven oil reserves. While the average number of offshore rigs internationally has been relatively flat over 2012, drilling in the GoM grew by almost 20%.

The region is also likely to play a more important role in U.S. production going forward as the country is expected to become the world’s largest oil producer by the end of this decade. The U.S. Department of the Interior announced plans last week to auction over 38 million acres of federally owned waters, which would allow oil and gas companies to ramp up their offshore drilling activities in the region. According to the government’s estimates, the area auctioned could produce nearly 1 billion barrels of oil and 4 trillion cubic feet of natural gas. [2] This could provide tremendous scope for drillers like Transocean to ramp up its business in the region.

Where Transocean Stands In The Gulf Of Mexico

The Gulf of Mexico is Transocean’s most important geographic market accounting for nearly 20% of overall revenues. The firm has 14 of its 27 ultra-deepwater rigs contracted in the region. These rigs command average dayrates of around $500,000 and are crucial to profitability as well since they have higher revenue efficiency (nearly 96%) and better utilization rates. Transocean’s customers in the GoM include Statoil (NYSE:STO), Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX). The firm also has a new-build ultra-deepwater drillship under construction for operation in the region. Last month, the firm reached a $1.4 billion settlement with the U.S. Department of Justice, to resolve civil and criminal disputes relating to the 2010 explosion of the Deepwater Horizon rig that the firm was operating for BP (NYSE: BP) in the U.S. Gulf Of Mexico. The settlement should allow the firm to put most of its legal woes behind it and allows it to concentrate on growth in the deepwater space.

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Notes:
  1. US EIA []
  2. U.S. News []
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